The primary motivation for creating your estate plan will likely be to ensure that your assets are distributed according to your wishes when you are gone so that those assets can continue to provide for your surviving loved ones. Along with your Last Will and Testament, you will likely use a wide array of additional estate planning tools and strategies within your plan. The Harrison living trust lawyers at the Law Offices of Kobrick & Moccia explain how to use an incentive trust in your estate plan to help further additional estate planning goals.
Understanding Trust Basics
A trust is a fiduciary arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Grantor may modify or terminate the trust at any time. An irrevocable living trust, however, can only be modified or revoked by the Grantor under certain circumstances.
What Is an Incentive Trust?
Trusts are often used in addition to a Last Will and Testament as a mechanism to pass down an inheritance. Parents often use a trust to protect the inheritance of a minor child because a minor cannot inherit directly from a parent. Moreover, we would all like to believe that our children or grandchildren will manage an inheritance with the utmost care and frugality, the reality is that if they are still relatively young at the time they receive that inheritance, they might not be particularly responsible with that money. A trust also allows you to stagger the distribution of an inheritance instead of handing over a lump sum to a beneficiary who isn’t emotionally, or practically, ready to handle a large sum of money. An “incentive trust” adds yet another layer of protection and pragmatism to the inheritance you plan to leave behind.
The terms you include in your trust are what make it an “incentive” trust. As the Grantor, you have the ability to tailor the terms of a trust any way you wish as long as the terms you create are not illegal, impossible, or unconscionable. To make a trust an incentive trust you simply create trust terms that encourage the beneficiaries of the trust to do something, or refrain from doing something, that is important to you. In other words, you provide a financial incentive to the beneficiaries to do things your way. For instance, if getting a college education is important to you, your trust terms might only allow trust assets to be used to cover expenses associated with a higher education. Conversely, if you are adamantly opposed to marriage at a young age, you might create trust terms that prohibit distributions from the trust if a beneficiary gets married before age 30 (or any age you choose).
Contact Harrison Living Trust Lawyers
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding the use of an incentive trust within your estate plan, or you are ready to get started creating your incentive trust, contact the Harrison living trust lawyers at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.